SEC Unveils Plans to Spur More Public Offerings


Start-up companies will be able to raise much more capital through certain public stock deals without facing costly regulatory burdens under a proposal announced by U.S. securities regulators on Wednesday.

The Securities and Exchange Commission's plan is the last major outstanding rule requirement from the Jumpstart Our Business Startups Act, a 2012 law that eases regulations to help small businesses raise capital and go public.

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It would update a rule on the books known as "Regulation A," a measure intended to spur capital-raising by exempting certain public offerings from SEC registration requirements.

Under Wednesday's plan, known in regulatory parlance as "Regulation A-plus," companies can decide to increase the amount of money that they can raise under Regulation A deals from $5 million under current rules to $50 million in a one-year period.

The proposal would exempt deals between $5 million and $50 million from oversight by the states.

However, any deals above the $5 million mark would also be subject to some additional regulatory requirements.

They would be required, for instance, to file audited financial statements, and investors would be capped on how much stock they could purchase.

Congress required the SEC to update the rules governing Regulation A in large part because its use has steadily declined in recent years.

In 2011, there were only 19 Reg A deals compared with 116 in 1997, according to a July 2012 report from the Government Accountability Office.

Securities legal experts have attributed the decline in part to the low $5 million cap.

However, many have also said companies have been deterred from using Regulation A because, although such offerings are exempt from SEC registration, they generally still must be registered in every state where they are sold.

This can be time-consuming and costly because each state has varying "blue sky" laws governing securities.

The JOBS Act gives the SEC the authority to preempt the states from overseeing Regulation A offerings if they are offered on a stock exchange or if the deals are only sold to sophisticated, "qualified" purchasers.

State securities regulators have urged the SEC not to take this route, saying it would harm their ability to protect investors and police for fraud.

In late October, the states came up with a plan to offer a streamlined registration process so that any company that wants to offer Regulation A deals in multiple states only needs to register the securities once.

While Wednesday's plan does propose to pre-empt state oversight of deals above $5 million, the SEC's proposal also asks questions about whether the states' streamlined registration process is a workable alternative.